RAVE Restaurant Group, Inc. (RAVE) Q3 2019 Earnings Report, Transcript and Summary

Good day and welcome to the RAVE Restaurant’s Group Inc. Reports Third Quarter 2019 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I’d now like to turn the conference over to Andrea Allen, Chief Accounting and Administrative Officer. Please go ahead.

Thank you. Good afternoon and thank you for joining the RAVE Restaurant Group’s fiscal third quarter 2019 earnings conference call. Everyone should have access to our fiscal third quarter 2019 earnings release that was published this morning. The press release can be found at www.raverg.com in the Investor Relations section. Before we begin, I would like to remind everyone that part of our discussions today will include some forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer you all to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. Please note that during today’s conference call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating our performance. Any discussion of such information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of comparable GAAP measures is available in our earnings release. With that, I’d like to turn the call over to Scott Crane, our Chief Executive Officer.

Thanks, Andrea. Good afternoon everyone. Our third quarter results are another indication for the progress for Rave. This quarter we continue to trend positive total domestic conference store retail sales and also make key investments in international operations, development resources that will accelerate the growth of Pizza Inn, Pie and Pie Five both domestically and international in the coming quarters. Pizza Inn were showing our stronger result in many, many years as we just completed our ninth consecutive quarter of same store sales domestically. Pizza Inn franchises are fully engaged and working to continue this momentum and we're really proud of the efforts of our team to improve the Pizza experience that our guest currently expect for more than 60 years. For Pie Five, we’re working through challenges and progress is being made. Today, we will discuss our key initiatives and the steps we’re taking to capitalize on some of the opportunities that we see for the brand. We've been really pleased and fussed about our newest concept Pie. Since its launch, there has been considerable interest -- there is been considerable interest for pie from non-traditional food retailers, both domestically and internationally. We now have a Pie Five of national brand with great value and opportunities for the pie concept. We're encouraged with the current path of the Company and have confidence that we can build on the progress and investments that we've made in all three brands. Pizza Inc, as I said, just completed its ninth consecutive quarter same store sales. The positive traction has reinvigorated our franchise base providing tailwinds for higher sales. Comparable stores, domestic retail sales increased by 3.3% and 4.3% respectively, during the third quarter of fiscal 2019 compared to the same period of the prior year. Year-to-date Pizza Inn comparable stores sales, retail sales increase by 2.8% and 2.2% respectively, compared to the same period prior year. Some key initiatives including all-day buffet, remodeling franchise locations, online ordering continue to drive our sales growth. Since releasing our new design and the core packages last year, franchisees have completed 7 remodels and results have been phenomenal. Refresh locations are making tremendous strides revitalizing the national image of Pizza Inn and our goal is remodel 4 additional locations by the end of this fiscal year, and other 4 in the first half of the next fiscal year 2020. Online ordering is experienced the third consecutive year of double-digit sales growth, thanks to the investment that we've made and the commitment to the new technologies from our franchisees. Pie Five comp store sales decrease 4.4% and 3.2% respectively for the 3 and 9 months periods, ending March 24, 2019, compared to the same period of the prior year. Pie Five total retail sales decreased 18% and 11%, respectively, for the 3 and 9 months period ending March 24, 2019, compared to the same period the prior year. In the third quarter, Pie Five comparable storage total domestic retail sales were heavily impacted by closures and extreme winter weather in our Northern markets. Despite these challenges, we've seen success in testing new menu items including calzones, which roll out to all restaurants starting this week. Expanded menu options like our 14-inch shareable pizzas and our cauliflower crust are resonating with our guests and leading to a bump in traffic in many locations. Pie Five continues to focus on off-premise growth opportunities including delivery, online ordering, carry out and drive through initiatives. By capitalizing on off-premise opportunities, we see a strategy that will deliver top-line sales growth and lower operating costs for our franchisees. The Goldilocks prototype continued to reflect this change in strategy and improve unit economics by combating, increasing real estate costs and labor pressure with a smaller footprint and a more simplified menu. The first Goldilocks locations are open around the country with more to come in the near future. And our existing restaurants, we're working closely with franchisees to analyze their specific challenges and to develop customized action plans through a new quarterly business review process. We have recently developed programs to improve speed of service, assist staffing and retention, and improved cost controls, and additionally will be implementing leadership training for owners and managers later this year. During the third quarter of fiscal '19, Pizza Inn/Pie Five domestic units increased 1 by 1 to 156, due to the opening of one new pie units, bringing us total of 8. Pie Five finished the quarter with 2 company-owned and 59 franchise restaurants. And with that, I'm going to turn the call back over to Andrea, our Chief Accounting and Administrative Officer.

Thanks, Scott. Total component revenue increased 15.2% to $3.1 million in the third quarter of fiscal 2019, compared to $2.7 million in the same period of the prior year. Increases in the quarter were driven by accelerated revenue recognition of fees attributable to the defaulted area development agreements and close doors as well as contributions to advertising and convention fund by franchisees and suppliers that were previously recorded, as net general and administrative expenses prior to the adoption of the new accounting standards. Year-to-date, total consolidate revenue decreased to $9.3 million compared to $12.3 million in the same period of the prior year. The year-to-date decrease was driven primarily by the year-over-year reduction in Company-owned Pie Five units, as we transferred company-owned stores to franchisees. For the nine months ended March 24, 2019, the Company-owned an average of one Pie Five restaurant compared to an average of 8 Pie Five restaurants in the same period of the prior year. For the 3-month period ending March 24, 2019, the Company reported a net loss of $0.3 million primarily related to a non-cash loss on the disposal of assets, impairment of long live assets and other lease charges enclosed and non-operating store costs totaling $0.4 million. In the same period of the prior year, the Company reported a net loss of $0.5 million, year-to-date, the Company reported net income of $0.1 million compared to a net loss of $1.4 million in the same period of the prior year. On a fully diluted basis, the Company reported a net loss of $0.02 per share for the third quarter of fiscal 2019 compared to a net loss of $3 per share in the same period as of prior year. Year-to-date, the Company reported net income of $0.01 per share fully diluted share compared to a net loss of $0.11 per share in the same period of the prior year. Adjusted EBITDA improved $0.6 million and $1.1 million for the three and nine month period ended March 24, 2019 to $0.4 million and $1.4 million, respectively. The improvement in adjusted EBITDA was primarily due to increased franchise and license revenues, decreased corporate general and administrative expenses and increased bad debt expense, partially offset by increased franchise expenses. The Company’s cash and cash equivalents increased to $1.9 million as of March 24, 2019, a $0.5 million increase during the first nine months of the 2019 fiscal year. During the first nine months of the fiscal year, cash provided from operating activity was $0.4 million compared to cash use of $4.4 million in the prior year which was primarily result of lease termination payment, net working capital related to the discontinuation of the Norco food and supply distribution division and an overall reduction in accounts payable. For the nine months ending March 24, 2019, cash provided by investing activities was $0.1 million compared to $0.8 million in the prior year. We had a net of $32,000 in cash provided from financing activities in the first nine months of fiscal 2019 related to the proceeds from the sale of stock. This compares to $4.1 million in cash provided from financing activities in the same period of prior year, which is primarily the result of the sale of stock in connection with the shareholders rate offering that was closed in September of 2017. On June 5, 2018, the Company adopted ASU 2014-09 and Topics to 606, using the modified retrospective to transition method. Results for reporting period beginning after June 25, 2018 are presented in accordance with Topic 606 while prior period now are not adjusted and continue to be reported in accordance with our historical accounting under Topics 605 revenue recognition. Additional detail on the adoption and fiscal 2019 impact of the new revenue recognition standard can be found in our Form 10-Q for the quarterly period ended March 24, 2019 filed with the SEC. Through the first nine months of fiscal 2019, shareholders equity reduced by a net of $1.9 million to $5.2 million since the end of fiscal 2018. The reduction was primarily the result of a cumulative effect, reduction of $1.6 million for the adoption of Topic 606, partially offset by net income, stock compensation and additional paid in capital. As a reminder, we disposed a great deal of brand specific financial and operating performance information in our earnings release tables and SEC filings. This information includes brand specific comp and non-comp restaurants average unit volumes and income statement line item details and variants explanations. Our Form-Q was filed with the SEC earlier this morning. I'll now turn the call back over to Scott Crane for his final remarks before we turn it over to Q&A.

Thanks Andrea. At a close, we continue to believe these positive trends in retail sales and profitability points were strong future for Rave. Recent investments in international operations and development resources, updated technologies and improving the restaurant experience for our guests give us confidence that we are well poised for future growth. With that, I thank everyone for being on the call and turn the call over to the operator for any questions.

Thank you very much for everyone joining and we're wrapped up.

Thank you.

Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.